Second Mortgage Foreclosure

Bills.com Team
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Highlights


  • Your second mortgage holder can foreclose on your home for non-payment.
  • Review why it is possible legally, although not practical economically, for a second mortgage holder to foreclose.
  • Consider the possible tax implications for any debt you have forgiven.
5.0
/5.0
(9 Votes)

It is possible legally, although not practical economically, for a second mortgagee to foreclose.

If you have a second mortgage which you are not able to pay, you can face foreclosure, whether or not you are paying your first mortgage in full and on time. While your second mortgage holder is in a weaker position, when it comes to collecting from the proceeds of a foreclosure sale, it does not mean that your second mortgage lender will accept non-payment without taking action. Just as with your first mortgage, you need to be concerned with the issues of recourse and non-recourse loans and a deficiency balance, when it comes to considering what kind of obligations you may have after a foreclosure.

The likelihood that your second mortgage holder will initiate a foreclosure depends on your property values and your lender’s ability to collect on a deficiency balance.

Property Values

Given today’s real estate market, where property values have dropped significantly in many areas, many homeowners are upside-down on their mortgages. If you are in a negative equity position, it may be possible legally, although not practical economically, for your second mortgage holder to foreclose and preserve its interests in the property. The first mortgage holder receives any money from a foreclosure before the second mortgage holder. If there is not enough equity in the home to pay off the first mortgage, the second mortgage holder gets nothing in the foreclosure sale.

When a second mortgage holder initiates the foreclosure process, it is responsible for paying off the first mortgage holder’s balance due. If the sale price of the property would not be enough to pay off the first mortgage balance and any property taxes, then the second mortgage holder would gain no economic benefit from foreclosing.

Deficiency Balance Collectibility

The ability of the second mortgage holder to collect on a deficiency balance depends on the legal remedies available and your financial position. In some states, such as California, and in some circumstances, your second mortgage may be a non-recourse loan. A non-recourse loan means that the lender has no legal ability to collect any deficiency balance that remains after your property is sold. Its only recourse is the security on the property itself. Most second loans are recourse loans, even in non-recourse states, although it may be a non-recourse loan if you took out the second mortgage and used the funds to purchase your home. If your loan is a non-recourse loan, the second mortgage holder will have no ability to collect on deficiency balance, which reduces the likelihood of the second mortgage holder foreclosing. You will need to review your loan documents and state laws to determine if your second mortgage is a non-recourse loan. Contact an attorney in your state who is experienced in property law to determine if your second mortgage is a recourse or non-recourse loan.

Your financial position is also important. As we discussed, a second mortgage holder is often reluctant to pursue foreclosure. However, if you have valuable assets or wages that can be garnished, your second mortgage holder will be likelier to aggressively pursue you, if it has the legal ability to do so. The more collectible the deficiency balance is, the greater the chance that your second mortgage holder will foreclose on you.

Quick Tip

Each state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.

Possible Payment Solutions

Second mortgage holders often initially take a hard-line stance in negotiations with homeowners in default. You may find it best to liquidate an asset voluntarily, as opposed to facing a wage levy that could cause you great financial havoc.

However, if the lender is convinced that you have no ability to repay the second mortgage and are considering bankruptcy, the lender’s position will soften and consider a lump-sum settlement. Some second mortgagees will settle for 10 to 30 cents on the dollar, depending on the policies of the company.

If collection efforts ensue, negotiate with the creditor in an attempt to reach an out-of-court settlement on the debt. If necessary, enroll the debt in a debt negotiation program. You can to the Bills.com debt relief savings center for a no-cost quote. Another option is to negotiate the debt yourself.

Quick Tip

Debt distressing you? The Bills.com Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.

Summary

If you end up with a deficiency balance, make sure that you understand what kind of financial and tax responsibilities can follow you, even after you lose or sell your home. If your lender decides to write off the debt, that can create a tax debt for you. Speak with an attorney or a tax specialist, so an expert can explain things to you. The last thing you want is for a problem that you thought was behind you to rear its head with IRS collection notices or a wage levy from a judgment your creditor obtained.

5.0
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(9 Votes)

79 Comments

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  • 35x35
    Jan, 2013
    Michael
    Went through a divorce here in Texas during 2012 and my wife was awarded our house. Second mortgage she decided she would not pay and let the home's first mortgage go into foreclosure on the property. She was paying the 2nd and quit, saying that I was to pay the second which was secured by the house... I was unable to as I was unemployed at the time. Horrible rates and loan $400 a month with $16k owed on a $20k loan taken out in 1997. Suggestions for my plight here in TX/!
    0 Votes

    • 35x35
      Jan, 2013
      Bill
      I assume your ex-spouse's failure to stay current on the second concerns you because of the immediate impact on your credit report and score, and because as co-signer of the mortgages you have personal liability for the loan. I do not have good news for you. There is no "if we get divorced, the party occupying the home has 100% liability for the debt," clause in any mortgage loan I have read. A divorce has no impact on a joint loan, even if one party promises to assume the liability for the loan. There are four ways a joint borrower can end their liability for a loan:
      • Convince the other borrower to refinance the loan in occupier's name only.
      • Convince the lender to not take action against the non-occupying spouse. There is no reasonable situation where I would see a lender doing so, however.
      • File bankruptcy.
      • Die

      You almost certainly have a cause of action (a legal reason to file a lawsuit) against your ex-spouse. If, for example, your spouse was wealthy and was not paying to spite you, you could ask a court to liquidate your ex-spouse's assets to pay the debt. That seems an unlikely set of circumstances here. Filing a lawsuit here would not be a wise course of action because it would not change the circumstances for either of you if you win.

      What to do? You have limited options. Talk to a Texas lawyer who has experience in bankruptcy to learn more about the positives and negatives of this option.

      1 Votes

  • 35x35
    Nov, 2012
    JP
    Bought home in CA for 1 million. Now worth 650K. Want to WalkAway. Both first and second Morts were original purchase money loans, and have never been modified. Both should be Non-Recourse. One of the specifications of non-recourse is that the home was purchased as an owner-occupied first home, non-investment - which it always has been for us. The one caveat is that when we initially purchased, the builder (new home) asked for a 2-month rent-back, which we gave them, before moving in 2 months after purchase. Does this rent back give legal recourse for the Bank to contend that the Non-Recourse is invalid?
    0 Votes

    • 35x35
      Dec, 2012
      Bill
      The key part of your question concerns the two month "rent-back" you mentioned. It is impossible to comment on how your situation fits with California's anti-deficiency law without knowing what's in the contract. Take your rental agreement and all of the documents you have regarding the home purchase to a California lawyer who has experience in real estate law. He or she will read the contract, and will give you an opinion how a California judge will view your liability for any deficiency balance.
      0 Votes

  • 35x35
    Nov, 2012
    James
    We lost our home to foreclosure in August of 2012. We were trying to short sell. However, the bank refused all offers. We moved to California with family since we lost our house in Las Vegas, Nevada. I just received a call from someone trying to collect on the second mortgage and also claimed if I do not pay they will garnish my wages. Is this possible? The house sold for less than what we owed and we are still trying to get on our feet. Can they garnish my wages or take what I have left, which isn't much?
    0 Votes

    • 35x35
      Nov, 2012
      Bill
      You mentioned the foreclosure occurred in Nevada. Nevada has some protections for consumers with deficiency balances resulting from a foreclosure. One key protection is a limited amount of time to file an action (in other words, a lawsuit) against the borrower. Follow the link just mentioned to learn more. I also suggest you study NRS 40.455

      Wage garnishment is the result of a legal process, which takes time. Follow the link just mentioned to to learn more.

      Open a negotiation with who I assume is a collection agent. Second mortgage deficiency balance collections are a new field for collection agents. The good news, if you can call it that, is second mortgage collection accounts sell for about a penny on the dollar. The collection agent has the right to collect the full balance, but probably does not expect to do so. Offer the collection agent three or four cents on the dollar as a settlement.

      Remember, under Nevada law, you have to worry about the deficiency balance for 6 months from the date of the foreclosure. After 6 months, the original creditor or a collection agent may not use the Nevada court system to collect the deficiency balance.
      1 Votes

  • 35x35
    Sep, 2012
    maury
    Had GMAC HEL on property, for $135K, and sold the property. Bought new property using HEL then paid off HEL, which is on record at registry of deeds, and shows discharge. But GMAC allowed me to use what I believe is HEL on previous property. Now owner of HEL is claiming they will foreclose. I went to the registry of deeds and they don't have any liens or mortgages on this property. I used the money but loan has sold twice; first to GMAC (what did that sell for, 5 cents on the dollar?); then sold last year again. What do I do offer them, $100 so i don't get a 1099? They are getting aggressive with calling family, showing up at my house, and so on. What to do?
    0 Votes

    • 35x35
      Sep, 2012
      Bill
      It is difficult for me to understand the exact chain of events that gave rise to the collection agent's claim you owe it money for an unpaid home equity loan. Nevertheless, I infer you believe you have a moral or legal liability for the amount claimed. If so, negotiate a settlement for the amount due. As you suggested, collection agents buy collection accounts for pennies on the dollar, and starting negotiations there is a good place to begin.

      You mentioned a 1099. Unless you are negotiating with the original lender, you need not worry about the collection agent issuing you a 1099-a or 1099-c.
      0 Votes

  • 35x35
    Jul, 2012
    Alisa
    The jr. lender foreclosed on our home even though just had filed BK. Jr. then "demanded" us to dismiss BK and if we did so would allow us to "rent" the property. This is what we did. A year and a half later the first foreclosed. Doesn't the jr. have to make payments to first or payoff loan? Also, before jr. foreclosed they demanded that we make our double payments to them for their loan AND our payment for first to them. Is this legal? Have filed complaint with Independent Review and now jr. phones and asks what they can do to resolve. I need help asap...please.
    0 Votes

    • 35x35
      Jul, 2012
      Bill
      There is much I do not understand about your message. Nevertheless, I will offer a few thoughts in response to your questions.
      • Once a debtor files a bankruptcy petition, all creditors are stayed from taking any action against the debtor. This includes foreclosure. The only way the junior could have foreclosed was with the bankruptcy court's permission. It had no right or standing to "demand" you ask the court to dismiss your bankruptcy filing. I confess I do not understand why your bankruptcy lawyer advised you to even give the junior the time of day, or why he or she did not raise the post-filing foreclosure issue with the court.
      • The senior home loan lender can buy-out the junior, or vice-versa.
      • The junior cannot demand you pay it what you may owe to another creditor, including the first. There is no legal or moral basis for this demand. However, as just mentioned, if the junior bought-out the senior, then it can demand payment for both loans because it owns the rights to do so.
      • I assume you filed a complaint with the Federal Reserve's Independent Foreclosure Review. The Independent Foreclosure Review determines whether homeowners who were involved in a foreclosure process between January 1, 2009 and December 31, 2010 suffered financial injury and should receive compensation or other remedy because of errors or other problems during their home foreclosure process. I will assume your foreclosure(s) occurred between those dates.

      My advice? If you were wise and retained documents that prove the events you described above, I believe you have an excellent series of complaints against the junior. I do not have enough information to even venture a guess how much you were harmed by the junior's actions. Consult with a lawyer with a firm spine who will not bend to the whims of the junior's offers for settlement or outrageous demands. Find a lawyer in your state who has civil litigation experience who is willing to work on a contingency basis.

      0 Votes

  • 35x35
    Jun, 2012
    Barb
    We had a second mortgage when our house was foreclosed on.The house was sold. Do we still have to pay the second loan?
    0 Votes

    • 35x35
      Jun, 2012
      Bill
      Was the property in a state with an anti-deficiency law? If yes, then you may not need to repay any deficiency balance(s) on your home loan(s). Follow the link I just mentioned to learn the laws in the state where your property was situated.
      0 Votes

  • 35x35
    Jun, 2012
    Michelle
    We have a 1st & 2nd (Citi) mortgages with a combined debt of roughly 220K. I received a letter from a firm in WA saying that Citibank is accepting settlement offers for 2nds on short sale refi's. They require $450 fee for appraisal (after they pre-approve us and agree to negotiate for us) before they will take it to Citi to negotiate the short refi. How do I know if this is a scam, and are there any legit companies that do this with Citi?? Also if we do qualify for a short refi with the 2nd being mostly eliminated, how will that affect our income tax liability? Thanks for your help
    0 Votes

    • 35x35
      Jun, 2012
      Bill
      Be very wary of unsolicited offers to negotiate mortgage balances. The offer may be legitimate, or it may be another take-the-money-and-run con. I would be suspicious. Two thoughts:
      1. Negotiate a lump-sum settlement on your own.
      2. Hire a local lawyer of your choosing to negotiate a settlement
      0 Votes

  • 35x35
    Jun, 2012
    Jennifer
    HI- we have a weird situation. We got a second mortgage thru ditech in 2002 for 45000. Its was a 125 loan- then they valued our home at 150000. We filked bankruptcy in June 2005 and included the second in the chapter 7. We have not been able to make the second mortgage payments over the last year- but have heard nothing from GMAC (used to be ditech) Our home is now valued at $48000. We owe 129000 on the first and Im not even sure how much we owe gmac. But that loan was discharged on our bankrupcty. We are current on our first mortgage and have been. Can they do anything? GMAC? I see they are now in Chapter 11
    0 Votes

    • 35x35
      Jun, 2012
      Bill
      A deed of trust and what we call a mortgage consists of two distinct documents:
      1. The promissory note is your personal promise to repay the loan, and
      2. The mortgage gives the lender the right to foreclose if the borrower defaults on their payments. Because this is a legal claim on the property, the mortgage is filed with the county recorder and is a public record

      You mentioned a chapter 7. A chapter 7 bankruptcy removes a borrower's liability for the promissory note, but does not change the lender's rights regarding the mortgage and its ability to foreclose. As an aside, the removal of personal liability is why your mortgage payments stop appearing on your credit report after the court discharged your chapter 7.

      The chapter 7 did not change the rights of your home loan lenders to foreclose. My advice? If your long-term plans are to stay in the property, consult with a bankruptcy lawyer about filing a chapter 13 bankruptcy. If you qualify, a chapter 13 will strip the lien from the second. Because you already removed your personal liability for both home loans, your second will have no recourse to collect the debt.

      GMAC-RFC Holding Company LLC/Residential Capital LLC's chapter 11 bankruptcy is not a free pass for homeowners with loans serviced by GMAC. (GMAC was the fifth-largest home loan servicer in the US in 2011.) Here, you may not have personal liability for your second thanks to your chapter 7, but GMAC's chapter 11 does not change whatever rights it or its successors may have for your second.

      0 Votes

  • 35x35
    May, 2012
    John
    Bills... IL resident Condo purchased in April 2005 for $210,000. 80/20 lender arrangement PHH 1st Mortgage - currently owe $153K TCF 2nd - Home Equity Line of Credit - currently owe $40K Condo last refinanced in Fall 2009 Currently owe $193,000 Assessed at $175,000 in 2009 Condo listed for sale in 2012 for $165,000: Only offer received was an informal verbal offer of $130,000 No longer primary residence due to job change. Rented for last year, costing us $700/month out of pocket beyond our rent income to cover rest of mortgage and assoc dues. Home income just over 70k and been told likely right on the fence about qualifying for bankruptcy. Hard to find someone to speak with who doesn't push an angle (bankruptcy attny, real estate attny, foreclosure litigator) and we feel like there are a lot of options in the realm of possibility but few unbiased people who are willing to look at our situation and give us real advice. Just trying to move forward with our life but feeling paralyzed. Up to date on all payments with good credit as we speak but tenant has left and we want to get out from under this place ASAP as we have moved into a rental in another area and just want to move toward an end with our condo. Your thoughts?
    0 Votes

    • 35x35
      May, 2012
      Bill
      John, it seems that you've looked at the likely options, none of which are too attractive. What have you heard from your lenders? What kind of reputation do they have for collecting on deficiency balances? The answers to those questions will influence your decision.

      In my view, you should seek a second opinion from another bankruptcy attorney. You need to get a more definitive analysis, so you know what side of the fence you'll end up- the one with your debt discharged or one where you have a five year repayment in a Chapter 13.
      0 Votes

  • 35x35
    Apr, 2012
    Richard
    This one might be tricky. I purchased my home December of 2002 for $110k. As the market kept going up, I obtained two separate HELOC's from Bank of Amerca that eventually totalled $140k combined. These loans were all obtained without proof of income but I had an 800+ credit score at that time. Long story short, in 2010 I filed Chapter 7 bankruptcy and all loans were included. I am still current on my first mortgage w/ a balance of $98,500 at 6.75%. A few months before I filed bankruptcy, BofA offered (after I hounded them and was late with payments) to reduce my loan balance from $140k to $120k and reduce the interest rate to 0%. I was instructed to mail cashier checks to some odd address (not the address on my old statements that just disappeared) every month and told I would not receive further statements and would not receive receipts. I did this for about 3 months and then stopped as I was uncomfortable with the whole arrangement not even knowing where this money was going. I have not made a payment on the HELOC since November 2010 and have not heard from them at all (maybe due to bankruptcy protection). We do not want to lose our home in foreclosure. I have paid into the loan for nearly 10 years and rebuilt it with my own hands. The current value of the home is around $140k. On my credit report it appears that the HELOC was charged off. All things considered, what are we up against here? Should I hire my bankruptcy attorney to renegotiate with them to reduce the balance due further and accept payments again? Or should we wait until our 3 years is up and have her file to remove the lien? I don't even know if the lien is still there or what is going on. Under no circumstances do we want to face foreclosure. I would really appreciate your insight, Richard
    0 Votes

    • 35x35
      Apr, 2012
      Bill
      The first sentence in your comment is an understatement. I cannot explain the status of your junior loan. Stopping sending your payments to the odd, mystery address was wise, indeed. The fact no one stepped forward to tell you to restart these payments may be telling.

      My advice? Involve your lawyer. He or she can conduct research to learn who owns the rights to this loan. If this cannot be determined, then either sit back and wait or ask your lawyer about filing a quiet title action.
      0 Votes

    • 35x35
      Apr, 2012
      Richard
      Thank you so much for your quick response. I believe BofA actually owned the HELOC's but after charge-off I would think they sent them to a collection company. I thought maybe they have not contacted me because they are not legally allowed to due to the bankruptcy, but then again when I was a few days late w/ one of my payments to my primary mortgage company they did send out a notice they were just sure to notate that it was for "informational purposes" and noted the bankrupty on the statement...hmmm I don't know. I just hope they are not sitting back b/c they intend to foreclose. I have contacted my attorney to ask for a time to sit down and go over things and I will be sure to ask about the Quiet Title Action. Thanks Much!! Rich
      0 Votes

  • 35x35
    Feb, 2012
    Jesus
    I bought a condo in 2004 and it went into foreclosure back in 2010 and I had one of those 80% - 20% loans. I refinanced the 20% in 2006 and pull 20k cash to bought a new home which is where I currently live. Now since the Condo went into Foreclosure and sold in 2010 the second lien never contacted me up until now that they want me to pay in full what I owed them. My question is; what options do I have? what would be your best recomendation on how to proceed?
    1 Votes

    • 35x35
      Feb, 2012
      Bill
      The first thing you should do is check and see what type of Anti-Deficiency and Non-Recourse Laws exist in your state. If you are liable for the debt, then you can either negotiate a settlement, wait to be sued, or file bankruptcy. I recommend that you read the Bills.com article about debt relief for more information about your options.
      0 Votes

  • 35x35
    Jan, 2012
    scottie
    i have a second mortgages and it is almost impossible for me to keep both mortgages current. What is my best way to get them put together?
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      I don't have enough information to guide you. It is not clear to me whether you have equity in your house. If you do not, then I don't know of a way that you can combine the two mortgages.

      If you do have equity, you can look into refinancing to combine them. You said that it is 'almost impossible' to keep your mortgages current. If you have had a number of late payments, refinancing may not be possible. If you have kept things together, but just barely, you may qualify. Lenders will examine your debt-to-income ratio, credit, and loan-to-value.

      Look into an FHA loan, if you have less than 20% equity, but at least 3.5%. FHA loans have less stringent credit requirements, too, though you do need to meet income requirements. You can start by contacting one of Bills.com's pre-screened lending partners.
      0 Votes

  • 35x35
    Nov, 2011
    jodi
    Bill - our house went into full foreclosure and was sold 2 1/2 years ago - I do have a home equity loan on the house as well which I have not paid on since we started the foreclosure process which the balance is 90,000 it was with GE and when I called them to make payment arrangements when the whole foreclosure thing started and I was honest with them - they told me there was not reason to make arrangments with them as Wells Fargo was going to get all the money on the sale of the house - since then I have been gettign calles from Specialized Loan Services (which GE sold my loan to them) - they have been calling for 2 1/2 years - do I legally have to pay them? we are trying to proceed with getting a new home and I do not want to be surprised with another bill - please let me know - thanks
    0 Votes

    • 35x35
      Nov, 2011
      Bill
      It would appear by your question that you had a home equity loan which was a recourse loan. If you are in doubt then you should review the loan documents and if necessary contact a lawyer for a legal opinion.

      It seems clear that Specialized Loan Services (SLS), believes that you are personally responsible for the loan. You mention getting calls. Has SLS pursued other courses of action? You will not receive a bill, as you already owe the money, however you could be sued which would lead to a judgment. Then, you may be subjected to liens, bank levies and wage garnishments.

      Before purchasing another home I recommend that you take out a credit report and review your situation. Are you able to qualify a new loan with an unsatisfied debt of $90,000.?
      2 Votes

  • 35x35
    Oct, 2011
    Patrick
    Bill I am taking a proerty back deed in lieu of to save a divorcing couple a foreclosure or short sale. Because of the extensive improvements (he is a contractor) & all new appliances I offered them $20,000 to close asap and leave everything behind. (I already have a couple prepared to lease the property). They jumped at it. They were current with their payments & taxes etc. However, the $20,000 cash more than compensates them for all interest payments made for the year. I do not plan to file a 1096C but I feel since I am reimbursing them the $20,000 I should not have to issue a 1098 for mtg interest paid. Am I correct.
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      I do not offer tax advice in situations like the one you described because I never have enough information to make an accurate observation. In other words, it would be really easy for me to give you bad advice that would result in negative consequences for you and the other party.

      Consult with a tax lawyer or CPA who can review all of the facts in your situation, and give you precise, tailored advice.
      0 Votes

  • 35x35
    Oct, 2011
    LORNA
    BILL.COM, Do to illness and loss of job I had to let my home go. I had a first and second on the home. The second I had disability insurance. If I file chapter 7 bankruptcy on the property, will I have obligation to pay the second if the disability insurance pays.
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      Lorna, you should discuss this with a bankruptcy attorney. If you qualify for Chapter 7, I believe that you will have to disclose all your assets. This very well could include the disability policy. An attorney will be able to tell you what kind of bankruptcy you qualify for and whether the money from the disability policy will need to go to your creditors.
      0 Votes

  • 35x35
    Oct, 2011
    william
    Can a second mortgagee take over the first mortgagee instead of causing foreclosure or bankruptcy problems and costs, perhaps through a quit claim deed or in lieu of foreclosure? Does 2nd have to buy out the first mortgagee's position in all cases?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      I am uncomfortable with the phrase, "...2nd have to buy out the first mortgagee's position in all cases". The second buying the first's interest is my first thought and the most obvious way for the second to move itself into the first position. However, I imagine there may be circumstances where the first and second trade their interests, perhaps involving several other mortgages where their positions are reversed. Gifting is also a possibility, though unlikely.

      Perhaps I lack imagination, but I do not see how a mortgagee could change their rights using a quit claim deed. Customarily, a quit-claim deed is used by a title holder to convey whatever rights they have in real property to another person.
      0 Votes

    • 35x35
      Oct, 2011
      william
      Dear Bill Thanx so much for your quick response. perhaps i wasn't clear enough on the circumstances to make my question make sense. yet, your suggestion about "gifting" might be close to the answer i'm looking for.... Here is the circumstances in more detail; I am interested in taking a second mortgage position (owner financing) on a home that i own outright at this time. My buyer agrees to a purchase price of 400K and agrees to obtain a 1st mortgage from another lender for 250K.... i will finance a 2nd note for 125K with a balloon in 4 years... so; in effect he only needs 25K down and we have a sale. I would like to know what my protections are in the event that the buyer can't or won't have the monthly payments for my mortgage, the first mortgage, and the required RE taxes and Insurance.... or perhaps they just let some the payment get in arrears for more than 2 months for any reason. my question; can i write the conditions of my second mortgage so that I can 'assume' the 1st mortgage if i take the aforementioned "quit claim deed" in lieu of going through some sort of bankrupcy or foreclosure procedures (....in effect i would be 'assuming back my own home purchase ' back with the 1st mortgage already in place and the 'buyer' would only forfeit his $25K downpayment and any equity he might have due to principle paydown on the 2 mortgages. (BTW this scenario is agreed to by both myself and the buyer, since he feels it unlikely that he would ever default... but i would like to know if this outcome would be legally possible, just in case it was needed.... perhaps, instead of a quit claim deed, the buyer could "gift" the house over to me with the 1st mortgage still in place? should my buyer make sure that the first mortgage has a "right of assignment" for this to happen easily? ...thanx for your guidance on this.
      0 Votes

    • 35x35
      Oct, 2011
      Bill
      If I understand what you seek correctly, I think you or the buyer will be hard-pressed to find a lender willing to subordinate their rights in the event of a default. Why not ask the borrower to look for a second mortgage, with you already in the first position?

      Another option to consider is a land contract, also called an option contract, whereby you agree to sell the property in X months for Y price contingent upon the buyer making consistent and on-time payments of Z dollars.

      In general, I encourage buyers and sellers to make creative arrangements to transact land deals. I also encourage people in these situations to hire a lawyer to mediate the transaction. You may think mediation is not necessary in your situation because you and the other party are on friendly terms. A lawyer with real property experience in this situation will not gum-up the works or make a good situation bad, but instead will guide both parties to create a contract everyone understands and likes that handles possible contingencies. A good lawyer may also find a way to help you both save on your tax liabilities.
      0 Votes

  • 35x35
    Oct, 2011
    MARISSA
    I owe $375,000 on my 1st with CitiMortgage @5.75%. $245,000 on my HELOC with Chase. My home is worth $490,000. I am current on both loans but my husband lost his job and I would like to get the HELOC dismissed or the rate to a fixed rate. A friend told me to stop making payments on the HELOC in order to get them to negotiate with me. Another friend told me to apply for the Home Affordable on the 1st loan and stop payments on the HELOC. Should I pay a representative $4,000 to do all the paperwork for me me and try to negotiate on both my loans??
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      I would first seek help from an organization that does not charge money, before I paid someone $4,000 to assist me. Contact Hope Now, where you can speak about your options, at no cost, with a HUD-approved counselor.

      Hope Now also has good information about loan modification scams, which could help you see if the person charging the $4,000 is charging a reasonable or unreasonable fee for the work it says it can do and whether you can reasonably expect that the work you may pay for would produce tangible results.
      0 Votes

  • 35x35
    Sep, 2011
    Tom
    Bill, We are at the tail end of our chapter 7 bankruptcy and have a 1st ($330,000) that is paid current and a 2nd ($50,000 line of credit lien) with Indie Mac. The 2nd was not paid during BK as we were advised it would be stripped. It is in the chargeoff dept and we have just sent our hardship package. We have other family on our street and are scared to death to lose our home. We are trying to settle while we are in BK, which will be discharged any day. We are offering $4,000 as my husband just lost his job and we had to use up our savings due to a previous job loss. We are current on the 1st and plan to keep that paid. What is your advise and do you think they will foreclose?? Thank you. Tom
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      Consult with your bankruptcy lawyer immediately about your negotiations with the second. You really want to make certain that a) negotiating with the second is necessary, and if so, b) you do not accidentally reinstate your liability for the loan.
      0 Votes

  • 35x35
    Sep, 2011
    Brian
    I owe $419 on the 1st with American Home Mortgage & owe $160 on a HELOC with GMAC & the principle just kicked in. The property appraised at $500 & is still dropping. I've read what you said about the second having the right to foreclose. My question is what is anyone's experience with GMAC? What is the likelihood they would foreclose? By my calculation after expenses the would only net about $25-30K
    0 Votes

  • 35x35
    Sep, 2011
    Jen
    I have a second mortgage question. Both first (IndyMac) and second (BOA) were discharged through a chapter 7 in May 2010. We are over 100k underwater and still paying the first so we have somewhere to live. BOA just recently started poking around looking for a payment (they have not been paid since 2009). Can they foreclose or would they foreclose? They would stand to gain nothing.
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      They can foreclose. The key question is whether or not it is worth their while to do so.

      It is not clear to me what you owe on the first and second mortgages. If BofA has to buy out the first, in order to foreclose on the second, would that improve BofA's position or weaken it?

      It is also possible that BofA will just pressure you with a threat of foreclosure to get you to pay or settle.
      0 Votes

    • 35x35
      Sep, 2011
      Jen
      Both mortgages were discharged through Chapter 7. The first, IndyMac is 390,000; second BOA is 80,000. So from what you are saying BOA would have to pay IndyMac the 390,000 to go after 80,000? BOA, I guess, thinks that we are going to re-open an 80,000 debt on a house we no longer own by threatening to retain its right to foreclose? OK. Spending 390,000 to get 80,000 sounds like a plan! We are current with the monthly payment on the first so we have a roof over our heads too. I know technically IndyMac could foreclose at any time, but that too seems unlikely because they are getting a payment from us each month and probably don't want another empty house on their hands.
      0 Votes

    • 35x35
      Sep, 2011
      Bill
      Yes, it is my understanding that if BofA initiates foreclosure, BofA would have to buy out Indy Mac, unless IndyMac decided to buy out BofA.

      If BofA moves forward with foreclosure, I recommend that you speak with a real estate attorney.
      0 Votes

    • 35x35
      Sep, 2011
      Jen
      One more thing - THANK YOU!!!! And I have another question - should we end foreclosing as the payments on the first are becoming too much, is the foreclosure listed separately in my credit report or is nothing reported since the debt is discharged? I keep seeing that foreclosure is something separate, but since we wouldn't really be foreclosed upon but really kicked out, is that the same thing? Again, thank you for your help :)
      0 Votes

    • 35x35
      Sep, 2011
      Bill
      I am not sure, but believe that your report could show both a forelcosure notation and a 'debt discharged in BK" notation.

      Nothing about your situation is ideal, but if your payments are getting too hard to make, at some point you need to start looking for somewhere else to live that you can afford. Your credit will be a barrier. You may need to consider stopping payment and banking as much as you can before they give you the heave-ho. That way, you can offer a new landlord a number of months payment at once, if necessary, which may offset the negative info on your credit report.
      0 Votes

    • 35x35
      Sep, 2011
      Jen
      Thanks again for your help; I know the foreclosure is inevitable but I wanted to see what my options are. Have a good weekend!
      0 Votes

  • 35x35
    Aug, 2011
    Celeste
    I owned a home in Michigan that was foreclosed in 2009. It had a second. I contacted my 2nd holder to make them aware that I was going through this. I was told that if they did not step up to assist me by refinancing or taking on the first they would lose their interest in the 2nd and be uncollectable. I have been dealing with this for 2 years and have tried to explain this to the collectors who call. This information I am basing on the laws enacted by Gov. Granholm in 2009. Can you clear this up for me or help me understand how I can clear this up.
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      Consult with a Michigan lawyer who has experience in real estate or consumer law regarding the the laws you mentioned. He or she will review the facts in your case, the responses you received from the mortgage servicers, and advise you accordingly.
      0 Votes

  • 35x35
    Aug, 2011
    Ralph
    I have a fist with BOFA and a second with United Guaranty. I had renters in the home but they were not paying rent and I had kick them out. I can no longer make the payments on the fist or second. I have been thinking of attempting a deed in lieu. I just don't know what to do.
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      Call your mortgage servicers, which are the companies you make your home loan payments to, and explain your situation. The customer service representatives will guide you to the correct departments that handle short sales and deeds in lieu of foreclosure.
      0 Votes

  • 35x35
    Jul, 2011
    rachel
    I have a 1st with bofa for 460,000 and a HELOCK with PNC for 80,000 The bofa is an I/O 7yr ARM that adjusts in 11/2013 and the HELOCK is fixed for 20yrs. I received a letter from the assessors office that my home is worth 224,500. I have no financial issues other than credit card debt we are trying to pay down. I feel trapped. Should I contact the bank now? Try to modify? Walk/short sale. Will I get a 1099C for over 300,000 dollars if I try to short sale?
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      Pay no attention to the tax assessor's value of your property. If you want to know today's market price of your property, do what the real estate agents and buyers do: Look at recent sales of comparable properties in your neighborhood. If the market value is really half of the loan balances, then you have nothing to lose by talking with your mortgage service about a modification or look into a FHA Short Refinance.
      0 Votes

  • 35x35
    Jul, 2011
    Michael
    I am 71,000.00 underwater with my 2 mortguages. I live in AZ and my first is not a freddi mac or fanny mae loan so I have been told many times that i can not have a loan mod. I tried 3 time with wells fargo and they said that my payment would be higher because i would have to pay the taxes and insurance in the mortguage. Bank of America, the holder of my home equity line of credit, said that there is nothing I can do. I have been paying interest only to these people on the second for 3 years and wasting a lot of money. My income has dropped 60 percent over the last 3 years and I am choking. My dream would be to be able to consolidate but there is no programm that does 120 percent mods. What shall I do?
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      You have few options. The best that comes to mind is a short refinance. Readers, I welcome your constructive suggestions.
      0 Votes

    • 35x35
      Jul, 2011
      deo
      I have a first and 2nd loan B/O/A and chase can chase put my house on foreclosure,B/O/A 106,000,chase is 33,000,i would like to keep the first mortgage,can i file bankruptcy on the 33,000 on chase
      0 Votes

    • 35x35
      Jul, 2011
      Bill
      A second mortgage lender can initiate a foreclosure, but it is not a common practice, especially if the forced sale of the home will not lead to any money coming to the second mortgage lender.

      I suggest you consult with a bankruptcy attorney. It may be possible to discharge the Chase debt through a bankruptcy.
      0 Votes

  • 35x35
    Jul, 2011
    chris
    Hello, I currently own a home that is upside down. According to Zillow, it is worth anywhere from 216K-296K. I currently have a 30yr fixed on my 1st mortgage which has a balance of 278K with Bank of America. I also have a HELOC (an ARM), that has a balance of 61K. I have 2 1/2 years before my heloc requiresit to be paid of with principle (I believe it is a 15 year repayment period). At that time, the rate can adjust significantly. I am current with all of my payments and I am employed. However, I want to refi my second into a fixed loan, if possible. I am trying to be practive and avoid a doomsday. However, B of a told me that there are no programs availble for someone in my situation- in order to refi my second. Are ther any programs out there that could put me into a better situation? Any suggestions? Thanks
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      The issue is not that the HELOC is a HELOC. Assuming you have solid income, a rock-bottom DTI, and the highest possible credit score, the fact of the matter is your loan-to-value (LTV) is greater than 100%. In other words, your first sentence in your message summarized your plight succinctly. Your LTV is way too high to refinance the second. It is also too high to roll into one loan. Unless you pay down the second or first, you will not qualify for a loan.
      0 Votes

  • 35x35
    Jun, 2011
    Ron
    Hi Bill, Through reductions in income for both my wife & I, we were forced into bankruptcy. We have a first and second mortgage, obtained at the same finacial institution but sold to two different banks. We are current on our first. We did not re-affirm either mortgage and both banks recognize that. There is only enough equity in the home to cover the first plus a tiny bit of the second. We tried the Obama "Making homes affordable" program and hired Home Mortgage Negotiators to try to re-negotiate our mortgage and got nowhere. How would I go about getting the bank with the second to negotiate a settlement to cancel that second mortgage? I have a relative that could cover a portion of the $60,000 owed on the second. I know they won't forclose any time soon but I would like to remove the cloud from the property.
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Open negotiations with the second to settle the debt. If the second refuses to negotiate, then consider ceasing your payments to the second. Once the debt is charged-off, the second will either foreclose, which you mentioned is not financially plausible, or open negotiations with you to resolve the debt.
      0 Votes

  • 35x35
    Jun, 2011
    Mike
    We purchased our primary home in West Virginia with the same lender under a 80/20 loan deal.. They then sold the loans to countrywide 80% and citi 20%. Well things have changed and in 2009 the house was foreclosed. I am still dealing with this today in regards to the 2nd mortgage. My credit report shows charged off on the 2nd and the first of course shows foreclosed. This debt has gone through three collection agencies. Now this third agency is sending standards letters and the typical home calls. The odd thing is that the balance is the same, no interest, no fees. And this agency has the property address in question as the rental home I am in now. I have not talked with them. In the letter they are at a 20% settlement if i call in on the toll free number or 30% if I dont. Sounds strange to me. Should I settle with them? Could they sue me for this deficiency? Is West Virginia anti-deficiency laws protect me here? Oh the house I guess was sold eventually and is being occupied by new residents. I do know this, the foreclosure did go into a non-judicial, public auction. Thank you for any advice. I am getting nervous.
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      First, validate the debt to make sure the collection agent has the legal right to collect the debt. Second, consult with a lawyer who has consumer law experience to make sure the debt was validated properly, and to assist you in the negotiations process.
      0 Votes

    • 35x35
      Jun, 2011
      Mike
      Thanks for your response. Unfortunately it has been well past 30 days to validate the debt. Now what? Does West Virginia allow a judgement on this? Plus I can't afford an attorney.
      0 Votes

    • 35x35
      Jun, 2011
      Mike
      Also to add, they never sent any letters via certified letter, so I will be sending out a validate debt letter.
      0 Votes

  • 35x35
    May, 2011
    Michelle
    We currently have a mortgage through Chase and a second through BOA. We were discharged from both through chapter 7 and never reaffirmed. We have been paying both loans to remain in our house but have come to the conclusion that we are getting nowhere trying to keep the upside down mortgage. Considering that they were both discharged, can they also report foreclosure to our credit? and realistically how long will we have before the foreclosure is final if we decide to go that route? Between the two loans we owe approximately 275,000..according to "zillow" our zestimate is 260,000
    0 Votes

    • 35x35
      May, 2011
      Bill
      Neither mortgage may be reported to the consumer credit reporting agencies because you have no personal liability for the debts, and you never reaffirmed the debts.

      Your second question is impossible to answer. Some foreclosures can take as little as three months, and others will take two years, depending upon the level of disorganization in your mortgage servicers, whether they have all of your original loan documents, the state laws where the property is situated, and the homeowner's level of cooperation or hostility.
      0 Votes

  • 35x35
    May, 2011
    Angie
    I have a 1st Mortgage and HELOC both with Chase. My 1st mortgage has just recently been modified however I also just found out that my HELOC is in charge off. My representative is trying to communicate with them to come up with a settlement but during the negotiation process, can they still Foreclose on my property since the 1st is also with Chase anyways? How long does it take for me to actually receive the Foreclosure notices from now? Can I still try to come up with a Payment Plan with them instead of a Lump Sum Settlement? Between a Chapter 13 and a Settlement, which do you consider a better route?
    0 Votes

    • 35x35
      May, 2011
      Bill
      Both mortgages may be with Chase, but I would be willing to bet the first is serviced by a Chase office in City A, and the HELOC is serviced in City B. I am also willing to bet the two offices represent different investors. I am also willing to bet the person responsible for your first has not communicated with the person who moved your HELOC into the charge-off pile. You would think there would be more communication within one company, but it just does not work that way.

      It would be foolish for me to predict Chase's (or any other mortgage servicer's) behavior. Nor can I predict the timeline for a possible foreclosure. I doubt even a Chase employee could answer that question.

      My best advice is for you to stay engaged with Chase's HELOC negotiator.
      0 Votes

  • 35x35
    Apr, 2011
    Maggie
    I have a first and second mortgage both with Chase. My first mortgage was recently modified. My second mortgage has been charged off and is with a 3rd party collection agency. I have been trying for months to get them to validate the loan with no luck. When they were not able to validate the loan I offered a small settlement (about .10 on the dollar) to resolve the issue. Two months later they finally responded to my request. None of the paperwork they sent me has anything to do with validating the loan. Instead they sent me a stack of documents including a significant amount of the paperwork I had submitted on my FIRST mortgage modification. Is the 3rd party allowed to have access to my first mortgage information? Is my lender allowed to supply them with information that is in no way associated to my second loan? What is the next step I should take in trying to settle this and move on?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      You have no legal requirement to pay a debt a collection agent cannot validate. Consult with a lawyer who has experience in consumer law before paying the collection agent even 10 cents on the dollar.
      0 Votes

  • 35x35
    Apr, 2011
    ed
    First, thank you so much for this website and the valuable information you provide! I basically understand when a 2nd mortgage might be foreclosure upon vs 'charged off'....relative to 'equity' etc. However, I would like to get your opinion on my specific situation. After more than a year and numerous attempts, I finally was able to get my 1st mortgage modified under HAMP. During this lengthy procedure, I did make some lower 'forebearance payments' on the 1st mortgage and my lender has been just fantastic with their help and encouragement. Cooperation has really been off the charts! During this time I was able to modify the 2nd thru HSBC(different lender) which only lowered my monthly 2nd payment by $165/month. However, I was barely able to met this obligation as a result of employment challenges...but did so as I was not paying much on the 1st at the time as we were trying to get the 1st modified. Now that I have started my full modified payments on the 1st, there just is no way I can handle the 2nd as that modification thru HSBC has ended and reverts to the original payment. I have contacted HSBC and they suggested that I apply for another modification but there is no way I could even pay $100 per month on it...let alone $600. My situation: The market value of my home has dropped to about $160-165K. The new balance on my modified 1st is now about $136K. I owe 50K on the 2nd which is in my name ONLY. My wife is only on the first and she is still employed. I finally had to take early social security in order to qualify for the modification on the 1st. Questions: In my situation what do you think the probability of the 2nd(HSBC)trying to foreclose vs 'charging off the debt'. I have been advised that it would not be logical for HSBC to try and foreclose...but who knows? Also, HSBC is not yet aware that I am on social security as they only know that I have been unemployed but no longer receiving unemployment benefits. Since they can't touch my Social and the 2nd loan is ONLY in my name (so they can't garnish my wife's wages) do you think that would affect their decision to try and foreclose or charge off? Thanks for your insight!
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Predicting the behavior of mortgage servicers is a fool's errand. Their actions the last three years have been so nonsensical that, from an outsider's perspective, suggests the inner workings of mortgage servicers as a group are disfunctional and out of control.
      0 Votes

  • 35x35
    Apr, 2011
    Sandra
    I have 2 mortgages on my home in california. The first is with Wescom Credit Union and I owe 255,000. I was able to do a modification that lowers it to 2% and is current. My second is with GMAC and is current. I tried to modify this loan and they only lowered it 1% which didn't even lower it $100. The loan is for $55,000. I told them I couldn't afford it anymore and tried to do a settlement and they turned me down flat. The average home is going for 180,000 to 200,000 here. I don't want to lose my home and I am under water with my first so why wouldn't GMAC settle? As of May I will start missing payments because I cannot afford it anymore. Any advice?
    1 Votes

    • 35x35
      Apr, 2011
      Bill
      Consult with a bankruptcy lawyer to learn your eligibility, rights, liabilities, and out-of-pocket fees for a Chapter 7 bankruptcy. After you gather this information, contact GMAC and explain what you learned. Explain that you do not wish to exercise this option, but if they persist in being obstinate in their negotiations that you will be forced into a corner where Chapter 7 is your only option. State the value of the properties in your area, and that the investor GMAC is representing will see zero if you pull the trigger on a Chapter 7. Ask if their investor would rather see 5 or 10 cents on the dollar or zero.

      In other words, keep negotiating and remember that you have what they want.
      0 Votes

  • 35x35
    Apr, 2011
    Soba
    Bill, My home is in CA purchased on 2007 and now $150K underwater. my 2nd loan is HELOC and non-recourse. Currently home is in "preforeclosure" sate as I was behind my mortgage payments for 6 months on both loans. Recently 2nd loan lender indicated that they are willing to settle my Heloc loan and the process may take 1 month. Assuming that I am able to settle my 2nd loan, can I keep my home if I bring the first loan to good standing by paying the balances ( thru' repayment plan or somw how) ? I can afford my first mortgage payments but not 2nd loan. if the 2nd loan is settled, will the lender come after me and take my home assuming I will fix my first loan and bring it back to good standing?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      I am not certain I understand your questions completely. If you, as you suggest, reach a settlement agreement with the second mortgagee, then that mortgage is finished forever, and the second will have no claim against you or your property. If you are close to reaching a settlement agreement with the second, by all means contact the first and explain the situation. The first wants to avoid foreclosure as much as you do. Perhaps you can renegotiate your first (called a "modification"), and keep your house.
      0 Votes

  • 35x35
    Apr, 2011
    Yolanda
    I have two mortgages, I already made a loan modification with the 1st. the second one, which I haven't paid for over two yrs just sent me a letter offering me a settlement for 32% of my debt, the 2nd mortgage is for $106,000. I haven't communicate with them until I get as much information as possible to negotiate with them. I would like to know what is the least I can offer them, since the market value of the house is less of what I owe to the 1st mortgage and obviously they know that it will be a total lost if they send me to foreclosure. I will be very happy to settle the 2nd mortgage if I can afford it. I was told of a settlement of the 2nd mortgage in NYC of $75,000 for only $4,000. thanks for your help.
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Settlements vary. If the consumer is as wealthy as Bill Gates, he or she will pay a much higher percentage in a settlement than a pensioner. Keep in mind that the servicer for the second mortgage is duty-bound to serve the investor, which means it wants to get the largest settlement possible from you. You, of course, have an interest in serving your needs. Start at 10 cents on the dollar for a lump-sum settlement, if you can afford it.
      0 Votes